China stocks fall as Covid outbreak fears grow

China stocks fell on Tuesday, as optimism over easing COVID-19 restrictions started fading amid signs of a spike in inflections in major Chinese cities including Beijing.
Representative image
Representative imageReuters

CHINA: China stocks fell on Tuesday, as optimism over easing COVID-19 restrictions started fading amid signs of a spike in inflections in major Chinese cities including Beijing. Hong Kong stocks however gained on news that the city would further relax its COVID curbs, boosting consumer and property shares.

The benchmark CSI300 Index fell 0.3%, while the Shanghai Composite Index dipped 0.2%. Hong Kong's Hang Seng Index climbed 0.6%. China and Hong Kong stocks have rebounded sharply from their end-October lows on hopes China would drop its strict zero-COVID policy.

Chinese authorities dismantled many strict zero-COVID policies last week, but optimism about a possible reopening of the economy is being replaced by fears of massive outbreaks and disruptions following Beijing's abrupt policy pivot. "Over the past two weeks, the Chinese government did a sudden 180-degree turn on ending zero-COVID," Nomura chief China economist Ting Lu wrote in a note to clients.

Since official COVID data is no longer reliable due to a drop in mandatory testing, Nomura used alternative data to track China's COVID situation, and concluded that Beijing is probably the epicentre, with several other major cities including Wuhan and Chengdu also witnessing a spike in infections.

"We believe China may have to pay a price for its procrastination in reopening," Lu said, adding that the outbreaks in big cities might be only the beginning of a massive wave of COVID infections across China.

Most sectors in China fell on Tuesday, with medical companies, which are market darlings recently, also correcting. An index tracking Chinese traditional medicine makers dropped 2.3% from 11-month highs.

Hong Kong stocks rose as investors cheered news that the city was easing COVID-related movement restrictions further. Arrivals in Hong Kong from Wednesday will no longer receive an "amber" code barring them from some venues, Chief Executive John Lee said, while dropping the use of a government-mandated COVID-19 mobile application.

Hong Kong tech stocks rose 0.7%, while consumer shares gained 1.3%.

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